Money in the Bank...How Does It Get There?

When should a person like me use a financial adviser?

The best way to find a good adviser is to ask friends whose financial acumen you respect—or contact the National Association of Personal Financial Advisors (NAPFA.org) or the American Institute of Certified Public Accountants (AICPA.org) to find a list of fee-based advisers in your area. "Commission-based advisers are not evil, but they tend to be salespeople," explains Susan Burke. Eric Tyson recommends you ask the following questions (and look for the following answers) when you meet an adviser for the first time: 

• What is your educational experience? (Business or finance.) 
  
• Do you sell life insurance, options, futures, or commodities? (No, no, no, and no.)
  
• Will you provide me with personal references from clients? (Yes.) 
  
• Do you have liability insurance? (Of course.) 
  
• Will you provide specific strategies I can implement on my own? (Absolutely.)

How will I ever be able to buy a house?

Home ownership: the impossible dream, especially for people contributing to a 401(k) or living in seemingly recession-proof housing markets—or both. But as long as you have not maxed out your 401(k) or IRA, "don't put money in a special savings account for a house," says John Claghorn. "Contribute as much as you can to your 401(k) and retirement accounts at work, which have tax and employer-matching benefits. You can withdraw $10,000 penalty-free from a traditional or Roth IRA for a first-time home purchase, and many employers allow you to borrow against retirement account balances." (Keep in mind that retirement account loans usually have to be paid back within a certain number of years.) Once you've made all your retirement contributions, Claghorn suggests opening a money market mutual fund (which invests low-risk, short- or medium-term investments such as treasury bills, bonds, and commercial paper) to start saving for a down payment. Eric Tyson suggests putting the cash into index funds that are managed by a computer; over 10 years, they outperform about 75 percent of the funds chosen by humans. Also, the best-performing index funds are the ones with the lowest expense ratios. Find out which those are by visiting MorningStar.com.

What kind of insurance do I actually need?

One in four Americans is underinsured for health crises, and about 60 percent of American homes are underinsured. "Most people need to consider five kinds of insurance: health, homeowner's, car, life, and disability," says J. Robert Hunter, director of insurance for the Consumer Federation of America. "Other kinds—from cancer policies to buyer-protection plans—are only worth it if you can't sleep at night without them." First on our list of questions: Who needs disability insurance? "It's only important to have if you are single or if your family is dependent on your income," says Hunter. Most people are best served by a policy that pays out 60 percent of their annual salary, because disability payments are not taxed.